e-discovery 2.0

The New Year has now dawned and with it, the certainty that 2012 will bring new developments to the world of eDiscovery.  Last month, we spotlighted some eDiscovery trends for 2012 that we feel certain will occur in the near term.  To understand how these trends will play out, it is instructive to review some of the top eDiscovery cases from 2011.  These decisions provide a roadmap of best practices that the courts promulgated last year.  They also spotlight the expectations that courts will likely have for organizations in 2012 and beyond.

Issuing a Timely and Comprehensive Litigation Hold

Case: E.I. du Pont de Nemours v. Kolon Industries (E.D. Va. July 21, 2011)

Summary: The court issued a stiff rebuke against defendant Kolon Industries for failing to issue a timely and proper litigation hold.  That rebuke came in the form of an instruction to the jury that Kolon executives and employees destroyed key evidence after the company’s preservation duty was triggered.  The jury responded by returning a stunning $919 million verdict for DuPont.

The spoliation at issue occurred when several Kolon executives and employees deleted thousands emails and other records relevant to DuPont’s trade secret claims.  The court laid the blame for this destruction on the company’s attorneys and executives, reasoning they could have prevented the spoliation through an effective litigation hold process.  At issue were three hold notices circulated to the key players and data sources.  The notices were all deficient in some manner.  They were either too limited in their distribution, ineffective since they were prepared in English for Korean-speaking employees, or too late to prevent or otherwise ameliorate the spoliation.

The Lessons for 2012: The DuPont case underscores the importance of issuing a timely and comprehensive litigation hold notice.  As DuPont teaches, organizations should identify what key players and data sources may have relevant information.  A comprehensive notice should then be prepared to communicate the precise hold instructions in an intelligible fashion.  Finally, the hold should be circulated immediately to prevent data loss.

Organizations should also consider deploying the latest technologies to help effectuate this process.  This includes an eDiscovery platform that enables automated legal hold acknowledgements.  Such technology will allow custodians to be promptly and properly apprised of litigation and thereby retain information that might otherwise have been discarded.

Another Must-Read Case: Haraburda v. Arcelor Mittal U.S.A., Inc. (D. Ind. June 28, 2011)

Suspending Document Retention Policies

Case: Viramontes v. U.S. Bancorp (N.D. Ill. Jan. 27, 2011)

Summary: The defendant bank defeated a sanctions motion because it modified aspects of its email retention policy once it was aware litigation was reasonably foreseeable.  The bank implemented a retention policy that kept emails for 90 days, after which the emails were overwritten and destroyed.  The bank also promulgated a course of action whereby the retention policy would be promptly suspended on the occurrence of litigation or other triggering event.  This way, the bank could establish the reasonableness of its policy in litigation.  Because the bank followed that procedure in good faith, it was protected from court sanctions under the Federal Rules of Civil Procedure 37(e) “safe harbor.”

The Lesson for 2012: As Viramontes shows, an organization can be prepared for eDiscovery disputes by timely suspending aspects of its document retention policies.  By modifying retention policies when so required, an organization can develop a defensible retention procedure and be protected from court sanctions under Rule 37(e).

Coupling those procedures with archiving software will only enhance an organization’s eDiscovery preparations.  Effective archiving software will have a litigation hold mechanism, which enables an organization to suspend automated retention rules.  This will better ensure that data subject to a preservation duty is actually retained.

Another Must-Read Case: Micron Technology, Inc. v. Rambus Inc., 645 F.3d 1311 (Fed. Cir. 2011)

Managing the Document Collection Process

Case: Northington v. H & M International (N.D.Ill. Jan. 12, 2011)

Summary: The court issued an adverse inference jury instruction against a company that destroyed relevant emails and other data.  The spoliation occurred in large part because legal and IT were not involved in the collection process.  For example, counsel was not actively engaged in the critical steps of preservation, identification or collection of electronically stored information (ESI).  Nor was IT brought into the picture until 15 months after the preservation duty was triggered. By that time, rank and file employees – some of whom were accused by the plaintiff of harassment – stepped into this vacuum and conducted the collection process without meaningful oversight.  Predictably, key documents were never found and the court had little choice but to promise to inform the jury that the company destroyed evidence.

The Lesson for 2012: An organization does not have to suffer the same fate as the company in the Northington case.  It can take charge of its data during litigation through cooperative governance between legal and IT.  After issuing a timely and effective litigation hold, legal should typically involve IT in the collection process.  Legal should rely on IT to help identify all data sources – servers, systems and custodians – that likely contain relevant information.  IT will also be instrumental in preserving and collecting that data for subsequent review and analysis by legal.  By working together in a top-down fashion, organizations can better ensure that their eDiscovery process is defensible and not fatally flawed.

Another Must-Read Case: Green v. Blitz U.S.A., Inc. (E.D. Tex. Mar. 1, 2011)

Using Proportionality to Dictate the Scope of Permissible Discovery

Case: DCG Systems v. Checkpoint Technologies (N.D. Ca. Nov. 2, 2011)

The court adopted the new Model Order on E-Discovery in Patent Cases recently promulgated by the U.S. Court of Appeals for the Federal Circuit.  The model order incorporates principles of proportionality to reduce the production of email in patent litigation.  In adopting the order, the court explained that email productions should be scaled back since email is infrequently introduced as evidence at trial.  As a result, email production requests will be restricted to five search terms and may only span a defined set of five custodians.  Furthermore, email discovery in DCG Systems will wait until after the parties complete discovery on the “core documentation” concerning the patent, the accused product and prior art.

The Lesson for 2012: Courts seem to be slowly moving toward a system that incorporates proportionality as the touchstone for eDiscovery.  This is occurring beyond the field of patent litigation, as evidenced by other recent cases.  Even the State of Utah has gotten in on the act, revising its version of Rule 26 to require that all discovery meet the standards of proportionality.  While there are undoubtedly deviations from this trend (e.g., Pippins v. KPMG (S.D.N.Y. Oct. 7, 2011)), the clear lesson is that discovery should comply with the cost cutting mandate of Federal Rule 1.

Another Must-Read Case: Omni Laboratories Inc. v. Eden Energy Ltd [2011] EWHC 2169 (TCC) (29 July 2011)

Leveraging eDiscovery Technologies for Search and Review

Case: Oracle America v. Google (N.D. Ca. Oct. 20, 2011)

The court ordered Google to produce an email that it previously withheld on attorney client privilege grounds.  While the email’s focus on business negotiations vitiated Google’s claim of privilege, that claim was also undermined by Google’s production of eight earlier drafts of the email.  The drafts were produced because they did not contain addressees or the heading “attorney client privilege,” which the sender later inserted into the final email draft.  Because those details were absent from the earlier drafts, Google’s “electronic scanning mechanisms did not catch those drafts before production.”

The Lesson for 2012: Organizations need to leverage next generation, robust technology to support the document production process in discovery.  Tools such as email analytical software, which can isolate drafts and offer to remove them from production, are needed to address complex production issues.  Other technological capabilities, such as Near Duplicate Identification, can also help identify draft materials and marry them up with finals that have been marked as privileged.  Last but not least, technology assisted review has the potential of enabling one lawyer to efficiently complete the work that previously took thousands of hours.  Finding the budget and doing the research to obtain the right tools for the enterprise should be a priority for organizations in 2012.

Another Must-Read Case: J-M Manufacturing v. McDermott, Will & Emery (CA Super. Jun. 2, 2011)

Conclusion

There were any number of other significant cases from 2011 that could have made this list.  We invite you to share your favorites in the comments section or contact us directly with your feedback.

For more on the cases discussed above, watch this video:

The eDiscovery frenzy that has gripped the American legal system over the past decade has become increasingly expensive.  Particularly costly to both clients and courts is the process of preserving, collecting and producing documents.  This was supposed to change after the Federal Rules of Civil Procedure (FRCP) were amended in 2006.  After all, weren’t the amended rules designed to streamline discovery, allowing parties to focus on the merits while making discovery costs more reasonable?  Instead, it seems the rules have spawned more collateral discovery disputes than ever before about preservation, collection and production issues.

As a solution to these costs, the eDiscovery cognoscenti are emphasizing the concept of “proportionality.”  Proportionality typically requires that the benefits of discovery be commensurate with its corresponding burdens.  Under the Federal Rules of Civil Procedure, the directive that discovery be proportional is found in Rules 26(c), 26(b)(2)(C) and Rule 26(b)(2)(B).  Under Rule 26(c), courts may generally issue protective orders that limit or even proscribe discovery that causes “annoyance, embarrassment, oppression, or undue burden or expense.”  More specifics are set forth in Rule 26(b)(2)(C), which enables courts to restrict discovery if the requests are unreasonably cumulative or duplicative, the discovery can be obtained from an alternative source that is less expensive or burdensome, or the burden or expense of the discovery outweighs its benefit.  In the specific context of electronic discovery, Rule 26(b)(2)(B) restricts the discovery of backup tapes and other electronically stored information that are “not reasonably accessible” due to “undue burden or cost.”

Despite the existence of these provisions, they are often bypassed.  The most recent and notable example of this trend is found in Pippins v. KPMG (S.D.N.Y. Oct. 7, 2011).  In Pippins, the court ordered the defendant accounting firm to continue preserving thousands of employee hard drives.  In so doing, the court sidestepped the firm’s proportionality argument, citing Orbit One v. Numerex (S.D.N.Y. 2010) for the premise that such a standard is “too amorphous” and therefore unworkable.  Regardless of cost or burden, the court reasoned that “prudence” required preservation of all relevant materials “until a more precise definition [of proportionality] is created by rule.”

The Pippins order and its associated costs for the firm – potentially into the millions of dollars – has given new fuel to the argument that an amended federal rule should be implemented to include a more express mandate regarding proportionality.  Surprisingly enough, a blueprint for such an amended rule is already in place in the State of Utah.  Effective November 1, 2011, Utah implemented sweeping changes to civil discovery practice through amended Civil Procedure Rule 26.  The new rule makes proportionality the standard now governing eDiscovery in Utah.

Proportionality Dictates the Scope of Permissible Discovery

Utah Rule 26 has changed the permissible scope of discovery to expressly condition that all discovery meet the standards of proportionality.  That means parties may seek discovery of relevant, non-privileged materials “if the discovery satisfies the standards of proportionality.”  This effectively shifts the burden of proof on proportionality from the responding party to the requesting party.  Indeed, Utah Rule 26(b)(3) specifically codifies this stunning change:  “The party seeking discovery always has the burden of showing proportionality and relevance.”  This stands in sharp contrast to Federal Rules 26(b)(2) and 26(c), which require the responding party to show the discovery is not proportional.

The “standards of proportionality” that have been read into Utah Rule 26 incorporate those found in Federal Rule 26(b)(2)(C).  In addition, Utah Rule 26 requires that discovery be “reasonable.”  Reasonableness is to be determined on the needs of a given case such as the amount in controversy, the parties’ resources, the complexity and importance of the issues, and the role of the discovery in addressing such issues.  Last but not least, discovery must expressly comply with the cost cutting mandate of Rule 1 and thereby “further the just, speedy and inexpensive determination of the case.”

Proportionality Limits the Amount of Discovery

To further address the burdens and costs of disproportionate discovery, Utah Rule 26(c) limits the amount of discovery that parties may conduct as a matter of right based on the specific amounts in controversy.  For those matters involving damages of $300,000 or more, parties may propound 20 interrogatories, document requests and requests for admissions.  Total fact deposition time is restricted to a mere 30 hours.  For matters between $50,000 and $300,000, those figures are halved.  And for matters under $50,000, only five document requests and requests for admissions are allotted to the parties.  Fact depositions are curtailed to three hours total per side, while interrogatories are eliminated.

If these limits are too restrictive, parties may request “extraordinary discovery” under Rule 26(c)(6).  However, any such request must demonstrate that the sought after discovery is “necessary and proportional” under the rules.  The parties must also certify that a budget for the discovery has been “reviewed and approved.”

A Potential Model for Federal Discovery Rule Amendments

Utah Rule 26 could perhaps serve as a model for amending the scope of permissible discovery under the Federal Rules.  Like Utah Rule 26, Federal Rule 26 could be amended to expressly condition discovery on meeting the principles of proportionality.  The Federal Rules could also be modified to ensure the propounding party always has the burden of demonstrating the fact specific good cause for its discovery.  Doing so would undoubtedly force counsel and client to be more precise with their requests and do away with the current regime of “promiscuous discovery.”  Calcor Space Facility, Inc. v. Superior Court, 53 Cal.App.4th 216, 223 (1997) (urging courts to “aggressively” curb discovery abuses which, “like a cancerous growth, can destroy a meritorious cause or defense”).

Tiering the amounts of permitted discovery based on alleged damages could also reduce the costs of discovery.  With limited deposition time and fewer document requests, discovery of necessity would likely focus on the merits instead of eDiscovery sideshows.  Coupling this with an “extraordinary discovery” provision would enable courts to exercise greater control over the process and ensure that genuinely complex matters are litigated efficiently.

If all of this seems like a radical departure from established discovery practice, consider that the new Model Order on E-Discovery in Patent Cases has also incorporated tiered and extraordinary discovery provisions.  See DCG Systems v. Checkpoint Technologies (N.D. Ca. Nov. 2, 2011) (adopting the model order and explaining the benefits of limiting eDiscovery in patent cases).

For those who are seeking a vision of how proportionality might be incorporated into the Federal Rules, new Utah Rule 26 could be a blueprint for doing so.

Few people on the planet know more about federal rulemaking than John Rabiej, The Sedona Conference’s Director for Judicial Outreach.  John’s experience is the result of serving as the Chief of the Rules Committee Support Office for nearly two decades, where he routinely worked with federal judges, including current Chief Justice of the U.S. Supreme Court, John Roberts.  A key part of supporting the rulemaking process included building consensus among many different groups and individuals who sometimes held vastly different notions of whether and how rules should be changed.

In addition to his role with The Sedona Conference, John is an accomplished author who has written extensively on rules related issues.  His publications include contributions to Moore’s Federal Practice, the Federal Lawyer, and Weinsten’s Federal Evidence.  I’m pleased to provide John’s take on the increasingly public debate about whether or not the Federal Rules of Civil Procedure (FRCP) should be amended.

Nelson: You are recognized as one of the leading experts on the Federal Rule making process.  How did you gain that experience and notoriety?

Rabiej: I established the rules committee office within the Administrative Office of United States Courts nearly two decades ago to provide staff support to the Judicial Conference Committee on Rules of Practice and Procedure and its five advisory rules committees.  In this capacity, I had the privilege and honor of working very closely with 31 federal circuit, district, and bankruptcy judges who chaired a rules committee. These chairs were personally selected by the Chief Justice and represented the very best of the federal judiciary.  I learned from each of them and put their wise counsel to good use when I, in turn, provided advice to their successors.  At the same time, I worked closely with the committee reporters, who are each stellar academics with national reputations for excellence.  Over the years, I built up an institutional knowledge of rule amendments based on first-hand experiences.

I soon realized that rulemaking is a transparent, formal, quasi-legislative process, which typically requires a great deal of information gathering, consultation with interested groups, and consensus building.  I played a unique role because I coordinated the rules work among the rules committees, other Judicial Conference committees, members of the Judicial Conference, Supreme Court staff, Congressional members and staff, Executive Branch officials, major bar organizations, academics, and interest groups.  Because the federal rules have the force of law, buy-in from all these various major actors was a critical component of success.  And many of my responsibilities were to ensure that the rules committees were advised of the concerns and different points of view of these various individuals and entities.

Nelson: Are there any interesting stories or life lessons you can share about working with any of the committee chairs and members?

Rabiej: Without exception, every rules committee chair in my experience has not only been exceptionally bright and intelligent, but also considerate and kind on a personal human level. They each displayed the highest level of judicial temperament.  A good example is Chief Justice (then Judge) John Roberts’ patience in handling a particularly difficult public hearing.  Several years ago, an elderly lawyer requested to testify on a proposed amendment to the Appellate Rules.  I was unable to persuade the lawyer to withdraw the request, even though his request was the only one.  Judge Roberts generously agreed to preside over the hearing by himself on the committee’s behalf.  Witnesses testifying at rules hearings typically are given 10 minutes to make their presentations.  With only Judge Roberts, a stenographer, and me in the hearing room, the lawyer made a 30-minute rambling presentation, which solely addressed a local incident allegedly involving criminal misconduct.  It had absolutely nothing to do with the procedural appellate rule proposal under consideration.  Judge Roberts never interrupted the lawyer.  He patiently listened, genuinely was interested in the lawyer’s story, and responded with courtesy to all the lawyer’s questions.  At the end, the lawyer was satisfied that he had his day in “court” and walked away content.  This is only one of many examples of my experiences with rules committee judges acting in the finest traditions of the federal judiciary.

Nelson: Who is lobbying for changes to the Federal Rules of Civil Procedure (“Rules”) and why?

Rabiej: Most rule amendment proposals are not controversial and are supported by general consensus.  But a few have been especially contentious.  Though rules are designed to apply to all parties in a neutral fashion, they can and do affect parties differently.  When large amounts of money hang in the balance, parties and their representatives go to great pains to make sure that the rules committees take into consideration their concerns and points of view. The current debate on preservation and sanctions issues is the most recent example.  The rules committees welcome such attention and close scrutiny because it leads to better and more informed rulemaking and greater buy-in from the affected parties and interest groups.

A loose coalition of officers from large corporations, corporate counsel, lawyers from large law firms, and interest groups, including Lawyers for Civil Justice, representing corporate and business clientele, is forming to advocate bold changes to the scope of discovery, which would narrow a party’s preservation obligations and limit a party’s vulnerability to spoliation sanctions.  They argue that the cost of preservation is skyrocketing and that the vast bulk of information preserved is unnecessary and has little to do with the merits of a case. They contend that all too often they are compelled by law to preserve voluminous information even though a law suit will never be filed. Opposing them is a similarly loose coalition of plaintiffs’ lawyers, law firms, and interest groups, including the Association for American Justice, representing interests of plaintiff lawyers, who defend the rules’ status quo, contending that little, if any, change is necessary and that any narrowing of the preservation obligation or discovery scope would deny the rights of their clients.  They contend that corporations are obligated under many different sources of law and regulations to preserve records irrespective of litigation demands.  They also contend that any change to the rules would unnecessarily increase the risk of destruction of evidence that is critical to the merits of the case.

Nelson: Are there viable alternatives to changing the Rules?

Rabiej: Lawyers in many cases do not raise any preservation or spoliation sanction issues with the court.  It is unclear to me whether such inaction in an individual case is a consequence of the lawyers’ ignorance of potential eDiscovery issues or of the lawyers’ cooperation in addressing eDiscovery issues before they become problems, which The Sedona Conference® strongly advocates.  (See The Sedona Conference® Cooperation Proclamation).  In wrestling with preservation and spoliation sanction issues, the rules committees recognize that rules rarely provide the entire answer and, in fact, rules typically have only a very limited effect.  Instead, judicial education, training of the bar, and changes in litigation culture offer more promising and permanent solutions.   The rules committees are actively exploring each of these avenues with outside groups, including the Federal Judicial Center and The Sedona Conference® among others, to promote such solutions.

Though the Judicial Conference of the United States strongly opposes direct amendment of the rules by legislation, it recognizes the Congressional prerogative to do so.  Congress has rarely exercised its prerogative, however, giving due deference to the rulemaking process and recognizing that the rules produced under the process are the best.  At the same time, rules committees understand that the Rules Enabling Act limits their authority to promulgating only procedural rules, which do “not abridge, enlarge or modify any substantive right.”  Rules committees are very circumspect about their rulemaking authority.  They are justifiably reluctant to pursue rules proposals that might be viewed by some to exceed their authority and encroach on Congress’s domain.  This “Rules Enabling Act” issue has been raised regarding some aspects of the preservation proposals under consideration. So the rules committees are confronted with issues that raise several exquisitely delicate questions of policy and comity.

Nelson: You’ve been involved in a lot of discussions regarding Rule amendments throughout your career.  How does the current discussion rate in terms of importance?

Rabiej: The current debate on preservation and spoliation sanctions raises issues about the scope of discovery, a major litigation cost.  Because the preservation costs incurred in some cases can be extremely large, the extent of spoliation sanctions for failing to preserve relevant information can be damaging, and the destruction of potentially critical evidence devastating.  It is not surprising that representatives of both plaintiffs and defendants are so passionately pressing their positions before the rule committees.  In my experience, the level of interest in these issues equals the interest shown in only a very few past controversial amendments, including proposals affecting class actions, Daubert evidentiary procedures, and the earlier discovery scope amendments in 2000.   The keen degree of interest in the issues under consideration is reflected by the extent of Congressional participation.  Five House Judiciary Committee members of the minority and majority staffs attended the recent Civil Rules Committee meeting on preservation-related amendments in Washington DC in November.  A hearing before the House Judiciary Subcommittee on the Constitution on preservation costs was recently scheduled, but later postponed until December 13, 2012.  It is clear to me that Congress will take a hard look at preservation costs and burdens.  The rules committees are not blind to Congressional interest.  The rulemaking process is a responsibility shared with Congress and the Executive Branch, and the rules committees give the views of the other two Branches due respect in their deliberations.

John Rabiej is an attorney, The Sedona Conference’s Director for Judicial Outreach, and former Chief of the Rules Committee Support Office.  To learn more about FRCP developments email Matt Nelson at Matt_Nelson@Symantec.com or follow Matt on Twitter at @InfoGovlawer.

As 2011 comes quickly to a close we’ve attempted, as in years past, to do our best Carnac impersonation and divine the future of eDiscovery.  Some of these predictions may happen more quickly than others, but it’s our sense that all will come to pass in the near future – it’s just a matter of timing.

1. Technology Assisted Review (TAR) Gains Speed.  The area of Technology Assisted Review is very exciting since there are a host of emerging technologies that can help make the review process more efficient, ranging from email threading, concept search, clustering, predictive coding and the like.  There are two fundamental challenges however.  First, the technology doesn’t work in a vacuum, meaning that the workflows need to be properly designed and the users need to make accurate decisions because those judgment calls often are then magnified by the application.  Next, the defensibility of the given approach needs to be well vetted.  While it’s likely not necessary (or practical) to expect a judge to mandate the use of a specific technological approach, it is important for the applied technologies to be reasonable, transparent and auditable since the worst possible outcome would be to have a technology challenged and then find the producing party unable to adequately explain their methodology.
2. The Custodian-Based Collection Model Comes Under Stress. Ever since the days of Zubulake, litigants have focused on “key players” as a proxy for finding relevant information during the eDiscovery process.  Early on, this model worked particularly well in an email-centric environment.  But, as discovery from cloud sources, collaborative worksites (like SharePoint) and other unstructured data repositories continues to become increasingly mainstream, the custodian-oriented collection model will become rapidly outmoded because it will fail to take into account topically-oriented searches.  This trend will be further amplified by the bench’s increasing distrust of manual, custodian-based data collection practices and the presence of better automated search methods, which are particularly valuable for certain types of litigation (e.g., patent disputes, product liability cases).
3. The FRCP Amendment Debate Will Rage On – Unfortunately Without Much Near Term Progress. While it is clear that the eDiscovery preservation duty has become a more complex and risk laden process, it’s not clear that this “pain” is causally related to the FRCP.  In the notes from the Dallas mini-conference, a pending Sedona survey was quoted referencing the fact that preservation challenges were increasing dramatically.  Yet, there isn’t a consensus viewpoint regarding which changes, if any, would help improve the murky problem.  In the near term this means that organizations with significant preservation pains will need to better utilize the rules that are on the books and deploy enabling technologies where possible.
4. Data Hoarding Increasingly Goes Out of Fashion. The war cry of many IT professionals that “storage is cheap” is starting to fall on deaf ears.  Organizations are realizing that the cost of storing information is just the tip of the iceberg when it comes to the litigation risk of having terabytes (and conceivably petabytes) of unstructured, uncategorized and unmanaged electronically stored information (ESI).  This tsunami of information will increasingly become an information liability for organizations that have never deleted a byte of information.  In 2012, more corporations will see the need to clean out their digital houses and will realize that such cleansing (where permitted) is a best practice moving forward.  This applies with equal force to the US government, which has recently mandated such an effort at President Obama’s behest.
5. Information Governance Becomes a Viable Reality.  For several years there’s been an effort to combine the reactive (far right) side of the EDRM with the logically connected proactive (far left) side of the EDRM.  But now, a number of surveys have linked good information governance hygiene with better response times to eDiscovery requests and governmental inquires, as well as a corresponding lower chance of being sanctioned and the ability to turn over less responsive information.  In 2012, enterprises will realize that the litigation use case is just one way to leverage archival and eDiscovery tools, further accelerating adoption.
6. Backup Tapes Will Be Increasingly Seen as a Liability.  Using backup tapes for disaster recovery/business continuity purposes remains a viable business strategy, although backing up to tape will become less prevalent as cloud backup increases.  However, if tapes are kept around longer than necessary (days versus months) then they become a ticking time bomb when a litigation or inquiry event crops up.
7. International eDiscovery/eDisclosure Processes Will Continue to Mature. It’s easy to think of the US as dominating the eDiscovery landscape. While this is gospel for us here in the States, international markets are developing quickly and in many ways are ahead of the US, particularly with regulatory compliance-driven use cases, like the UK Bribery Act 2010.  This fact, coupled with the menagerie of international privacy laws, means we’ll be less Balkanized in our eDiscovery efforts moving forward since we do really need to be thinking and practicing globally.
8. Email Becomes “So 2009” As Social Media Gains Traction. While email has been the eDiscovery darling for the past decade, it’s getting a little long in the tooth.  In the next year, new types of ESI (social media, structured data, loose files, cloud context, mobile device messages, etc.) will cause headaches for a number of enterprises that have been overly email-centric.  Already in 2011, organizations are finding that other sources of ESI like documents/files and structured data are rivaling email in importance for eDiscovery requests, and this trend shows no signs of abating, particularly for regulated industries. This heterogeneous mix of ESI will certainly result in challenges for many companies, with some unlucky ones getting sanctioned because they ignored these emerging data types.
9. Cost Shifting Will Become More Prevalent – Impacting the “American Rule.” For ages, the American Rule held that producing parties had to pay for their production costs, with a few narrow exceptions.  Next year we’ll see even more courts award winning parties their eDiscovery costs under 28 U.S.C. §1920(4) and Rule 54(d)(1) FRCP. Courts are now beginning to consider the services of an eDiscovery vendor as “the 21st Century equivalent of making copies.”
10. Risk Assessment Becomes a Critical Component of eDiscovery. Managing risk is a foundational underpinning for litigators generally, but its role in eDiscovery has been a bit obscure.  Now, with the tremendous statistical insights that are made possible by enabling software technologies, it will become increasingly important for counsel to manage risk by deciding what types of error/precision rates are possible.  This risk analysis is particularly critical for conducting any variety of technology assisted review process since precision, recall and f-measure statistics all require a delicate balance of risk and reward.

A federal jury returned a stunning, $919 million verdict yesterday for DuPont in a trade secret theft case.  In E.I. du Pont de Nemours v. Kolon Industries, the verdict was the culmination of a two-and-a-half year battle that DuPont waged against Kolon Industries to prove that Kolon had misappropriated key aspects of its formula for Kevlar®.

The court delivered a decisive blow shortly before trial when it found that Kolon had destroyed emails and other electronically stored information linking it to the trade secret theft.  The sanction for that spoliation was an instruction to the jury that Kolon executives and employees had deleted key evidence after the company’s preservation duty was triggered.

The verdict against Kolon is just the beginning of its problems.  DuPont will now request over $50 million in punitive damages from Kolon, another $30 million for reimbursement of its attorney fees and a permanent injunction forbidding Kolon from using the stolen trade secrets.  Not surprisingly, Kolon’s stock dropped 15% after news of the verdict reached the markets today.

The eDiscovery sanctions order and corresponding verdict make it clear that organizations should invest the time and effort to properly prepare for litigation and discovery.  As we argued in our previous post on the DuPont case, having the right tools in place could have prevented much of the spoliation – and the resulting instruction to the jury – that occurred in the DuPont case.

If you have been following my previous posts regarding possible amendments to the Federal Rules of Civil Procedure (Rules), then you know I promised a special interview with former United States Magistrate Judge Ron Hedges.  The timing of the discussion is perfect considering that a “mini-conference” is being hosted by a Federal Rules Discovery Subcommittee today (September 9th) in Dallas, TX.  The debate will focus on whether or not the Rules should be amended to address evidence preservation and sanctions.  I am attending the mini-conference and will summarize my observations as part of my next post.  In the meantime, please enjoy reading the dialogue below for a glimpse into Judge Hedges’ perspective regarding possible Rule amendments.

Nelson: You were recently quoted in a Law Technology News (LTN) article written by Evan Koblentz as saying, “I don’t see a need to amend the rules” because these rules haven’t been around long enough to see what happens.  Isn’t almost five years long enough?

Judge Hedges: No.  For the simple reason that both attorneys and judges continue to need education on the 2006 amendments and, more particularly, they need to understand the technologies that create and store electronic information.  The amendments establish a framework within which attorneys and judges make daily decisions on discovery.  I have not seen any objective evidence that the framework is somehow failing and needs further amendment.

Nelson: You also said the “big problem” is that people don’t talk enough.  What did you mean?  Hasn’t the Sedona Cooperation Proclamation made a difference?

Judge Hedges: The centerpiece of the 2006 amendments (at least in my view) is Rule 26(f).  I think it is fair to say that the legal community’s response to 26(f) has been, to say the least, varied. Civil actions with large volumes of ESI that may be discoverable under Rule 26(b)(1) cry out for extensive 26(f) meet-and-confer discussions that may take a number of meetings and require the presence of party representatives from, for example, IT.  There is an element of trust required between adversary counsel (with the concurrence of the parties they represent) that may be difficult to establish – but some cooperation is necessary to make 26(f) work.  Overlay that reality with our adversary system and the duty of attorneys to zealously advocate on behalf of their clients and you can understand why cooperation isn’t always a top priority for some attorneys.

However, “transparency” in discussing ESI is essential, along with advocacy and the need to maintain appropriate confidentiality. That’s where the Sedona Conference Proclamation can make a big difference. Has the Proclamation done that? It’s too early to reach a conclusion on that question, but the Proclamation is often cited and, as education progresses in eDiscovery, I am confident that the Proclamation will be recognized as a means to realize the just, speedy, and inexpensive resolution of litigation, as articulated under Rule 1.

Nelson: You also mentioned that the Federal Rules Advisory Committee might be running afoul of the Rules Enabling Act.  Can you explain?

Judge Hedges: There is a distinction between “procedural” and “substantive” rules.  The Rules Enabling Act governs the adoption of the former.  Rule 502 of the Federal Rules of Evidence is an example of a substantive rule that was proposed by the Judicial Conference.  However, since Rule 502 is a rule dealing with substantive privilege and waiver issues, it had to be enacted into law through an Act of Congress.  I am concerned that proposals to further amend the Federal Rules of Civil Procedure may cross the line from procedural to substantive.  I am not prepared to suggest at this time, however, that anything I have seen has crossed the line.  Stay tuned.

Nelson: If you had to select one of the three options currently being considered (see page 264), which option would you select and why?

Judge Hedges: To start, I would not choose option 1, which presumes that the Rules can reach pre-litigation conduct consistent with the Rules Enabling Act.  My concern here is also that, in the area of electronic information, a too-specific rule risks “overnight” obsolescence, just as the Electronic Communications Privacy Act, enacted in 1986, is considered by a number of commentators to be, at best, obsolescent.  Note also that I did not use the word “stored” when I mentioned electronic information, as courts have already required that so-called ephemeral information be preserved.  Nor would I choose option 2.  Absent seeing more than the brief description of the category on page 264, it seems to me that option 2 is likely to do nothing more than be a restatement of the existing law on when the duty to preserve is “triggered.”

So, by default, I am forced to choose option 3.  I presume a rule would say something like, “sanctions may not be imposed on a party for loss of ESI (or “EI”) if that party acted reasonably in making preservation decisions.”  There are a number of problems here. First, in a jurisdiction which allows the imposition of at least some sanction for negligence, all the rule would likely do is be interpreted to foreclose “serious” sanctions. Isn’t that correct? Or is the rule intended to supersede existing variances in the law of sanctions?  At that point, does the rule become “substantive”?   Second, how will “reasonableness” be defined?  Reasonableness supposes the existence of a duty – in this case, a duty to preserve.  For example, is there a duty to preserve ephemeral data that a party knows is relevant?  We come back full circle to where we began.

Remember, Rule 37(f) (now 37(e)) was intended to provide some level of protection against the imposition of sanctions, just as the categories are intended to.  Right?  And five years later 37(e) remains defined variously to be a “safe harbor” or a “lighthouse” by some lawyers such as Jonathan Redgrave or an “uncharted minefield” by others like me.

Nelson: What about heightened pleading standards after the Iqbal and Twombly decisions?  Do these decisions have any relevance to electronic discovery and the topic at hand?

Judge Hedges: Let me begin by saying that I am no fan of Twombly or Iqbal. The decisions, however well intended, have led to undue cost and delay all too often.  Not only is motion to dismiss practice costly for parties, but it imposes great burdens on the United States Courts and, as often as not, leads to at least one other round of motion practice as plaintiffs are given leave to re-plead.  All the while, parties have preservation obligations to fulfill and, in the hope of saving expense, discovery is often stayed until a motion is “finally” decided.  I would like to see objective evidence of the delay and cost of this motion practice (and I expect that the Administrative Office of the United States has statistical evidence already).  I would also like to see objective evidence from defendants distinguishing between the cost of motion practice and later discovery costs.

Putting all that aside, and if I had to accept one option, I would choose to allow some discovery that is integrated to the motion practice.  First, even without the filing of a responsive pleading, there should be a 26(f) meet-and-confer to discuss, if nothing else, the nature and scope of preservation and the possibility of securing a Rule 502(d) order. Second, while I have serious concerns about “pre-answer discovery” for a number of reasons, I would have the parties make 26(a)(1) disclosures while a motion to dismiss is pending or leave to re-plead has been granted in order to address the likely “asymmetry of information” between a plaintiff and a moving defendant.  Once the disclosures are made, I would allow the plaintiff to secure some information identified in the disclosures to allow re-pleading and perhaps obviate the need for continued motion practice.

All of this would, of course, require active judicial management.  And one would hope that Congress, which seems so interested in conserving resources, would recognize the vital role of the United States Courts in securing justice for everyone and give adequate funding to the Courts.

eDiscovery best practices, particularly practical ones, are hard to come by.  That’s why the Pilot Program of the 7th Circuit has been such a novel (and successful) undertaking.  As part of this program, judges, outside counsel and industry experts collaborated to practically deal with the many vexing eDiscovery challenges in the courtroom. By way of background, the 7th Circuit Electronic Discovery Pilot Program Committee was formed in May 2009 and was chartered to conduct a multi-year, multi-phase project to develop, implement, evaluate, and improve pretrial litigation procedures, which ideally would provide fairness and justice to all parties, while seeking to reduce the cost and burden of electronic discovery consistent with Rule 1 of the Federal Rules of Civil Procedure (FRCP).

The Committee, comprised of the most talented experts in the 7th Circuit, as well as experts in relevant fields of technology, promulgated “Principles Relating to the Discovery of Electronically Stored Information” (“Principles”) and a Proposed Standing Order by which participating judges could implement the Principles in the Pilot Program’s test cases.  Practicing lawyers wrote the Principles under the guidance of federal judges in Chicago, with the end result being a consensus from experts in the field of eDiscovery rather than a prescriptive approach dictated by the courts.  The Committee now has 80 members, including members from all 7 federal districts in the 7th Circuit and around the country, and is chaired by Chief Judge Holderman and Magistrate Judge Nolan of the Northern District of Illinois. The Principles provide a checklist of important considerations for the initial meet and confer conference, as well as even-handed rules regarding preserving and producing electronically stored information (ESI) that provide more granularity to the Federal Rules of Civil Procedure.

The 7th Circuit has been well-received, and evangelists are jumping on board in other Circuits, including the 9th Circuit.  Art Gollwitzer, a member of the 7th Circuit eDiscovery Pilot Program Committee, practices patent law, was key in the formation of the Principles notably the Preservation Principle 2.04, and now heads the National Outreach Committee for the 7th Circuit Program.  In a recent case, Joao Control & Monitoring Systems of California, LLC v. ACTI Corp., et al., Case No. SA CV10-1909-DOC, in the Central District of California, Art was pleasantly surprised to see language that he helped write in a draft ESI order handed out by the court to the parties for their consideration at the initial status conference.  “I was very happy to see the exact language that our committee drafted after many hours of discussion in the summer of 2009 in the court’s proposed order,” Art explained.  “We worked hard to reduce the cost and burden of electronic discovery and to prevent ESI discovery from turning into a game of ‘gotcha’.”

The goal of the National Outreach Committee is to spread the word about the 7th Circuit’s ESI Program and its benefits.  “We envision spreading the word through articles, speeches, and ‘grass-roots’ or word-of-mouth efforts,” says Gollwitzer. To that end, liaisons in each Circuit or even each district can talk to judges and encourage colleagues to propose that courts adopt the Committee’s principles in Rule 26(f) orders on a case-by-case basis.  “We also can describe the program and its principles at local bar associations and Inns of Court,” he explains.  “Finally, we can volunteer for local rules committees or comment on ESI proposals for local rules.”

With each jurisdiction having its own local rules and each legal community having its own flavor, the exercise of bringing all stakeholders into the process to contribute to the Principles is unprecedented.  Whether each Circuit starts their own Pilot Programs, or initially adopts the 7th Circuit’s Principles and then modifies as necessary, remains to be seen.  Either way, results from the 7th Circuit have been positive thus far, generating supporters nationally.  The hope is that courts and practitioners will start with these Principles in order to avoid a patchwork of ESI rules across the country.

The general consensus of the participating judges in Phase I of the Pilot Program was that the Principles were having a positive effect both on counsel’s cooperation with opposing counsel, and on counsel’s knowledge of procedures to be followed when addressing electronic discovery issues. The judges felt that the involvement of eDiscovery liaisons required by Principle 2.02 contributed to a more efficient and cost effective discovery process. Many of the participating lawyers reported little impact on their cases, presumably mostly because of the limited 6-month duration of Phase I. Those lawyers who did see an effect from the application of the Principles in their cases overwhelmingly reported that the effect was positive in terms of promoting fairness, fostering more amicable dispute resolution, and facilitating their advocacy on behalf of their clients. The Committee intends to present its Final Report on the 2-year Phase II evaluation at the 7th Circuit Bar Association Meeting in May 2012.

While most attorneys are following the guidance of Principle 2.01 (a) and (c), Duty to Meet and Confer on Discovery and to Identify Disputes for Early Resolution, it is barely the majority.  And curiously, a significant minority of attorneys acknowledged they had not familiarized themselves with their client’s information systems or had early discussions with their opponents about ESI preservation issues even though they were applicable in the case.

What does this suggest? For one thing, the landscape is improving – but there is still a long way to go.  Why would even a single attorney with a case in the Pilot Program ignore relevant ESI issues? One of the major problems with the vagueness of the Federal Rules was a lack of clear-cut guidance. Now, even though there is a Standing Order in the case providing guidance and Principle 2.01 (d) outlining sanctions that could be imposed for failure to comply, some lawyers still do not.

Every Circuit should be forming a Committee and bringing practitioners, judges and experts together to weigh in on these important ESI issues.  Fortunately, there is a successful model available with hard data.  The 7th Circuit’s Principles and Standing Order are a good place to start.

There are legions of Arnold Schwarzenegger quotes, including the famous “I’ll be back” from The Terminator.  Well, true to this sentiment, The Governator finally coughed up his hairball and made good on the promises to push through California’s long overdue alignment with the electronic discovery changes made by the FRCP on 12/1/2006.

Citing mysterious budgetary concerns (which still elude me), The Governator initially vetoed Assembly Bill No. 5.  But as of July 1^st, California’s new electronic discovery provisions were finally made law.  Interestingly enough, California (which tends to more progressive than most) was way behind the times in terms of adopting the new framework of the FRCP…

“The California Discovery Act hadn’t really been revised or amended since the mid-1980s,” said Patrick O’Donnell, the supervising attorney for the Judicial Council’s Office of the General Counsel who led efforts to write the state’s e-discovery law. “This is really a major step to address the changes in the world of electronic data since then. … This gives a lot more clarity and certainty in how the issue will be focused on.”

Instead of the alleged budgetary concerns it appeared that California had (and still has) bigger fish to fry and needed some extra cycles to get lawmakers, attorneys, Silicon Valley leaders and court administrators all on the same page.

The new California provisions pretty closely mirror the FRCP language with a few minor exceptions, called out by Joshua M. Briones and Anahit Tagvoryan in their recent article…

• Minor tweaks to the Rule 37 language around the safe harbor provisions broadening slightly (beyond “loss”) the California language to also preclude sanctions where ESI is “lost, damaged, altered, or overwritten.”
• No corresponding meet & confer provisions in the California statute similar to the Rule 16 and 26 sections in the FRCP.
• Inaccessibility provisions of FRCP 26(b)(2)(B) changed slightly to require producing party to file a protective order for ESI it believes is not reasonably accessible due to “undue burden or expense.”

While a long time in the offing, these provisions (despite the minor tweaks) should be a refreshing change for California practitioners who’ve been waiting too long for the other shoe to drop.  Now, case law can start to develop, which will continue the honing-in process…